Mutual Funds
4.24 Mutual Funds have emerged as an
important segment of financial markets in India,
especially following the initiatives taken by
Government in the 1999-2000 Budget to resolve
problems associated with UTI’s US-64 Scheme
and to liberalise tax treatment of incomes
earned through mutual funds. They now play a
crucial role in channeling savings of millions of
individuals/households from different parts of
the country into investment in both equity and
debt instruments. The mutual fund industry has
witnessed several innovations in the current
financial year. The monetary and credit policy
for 1999-2000 has permitted money market
mutual funds to offer cheque writing facility to
unit holders. Some of the Mutual Funds have
introduced limited cheque writing facility by
allowing its unit holders to issue cheques
against a savings account with a designated
bank. The Mid-term Review of Monetary and
Credit Policy announced the decision to permit
scheduled commercial banks to offer “cheque
writing“ facility to Gilt Funds and those Liquid
Income Schemes of Mutual Funds which
predominantly (not less than 80 % of the corpus)
invest in money market instruments. The Midterm policy statement of RBI has also permitted
Mutual Funds to undertake Forward Rate
Agreement (FRA)/Interest Rate Swaps (IRS)
with banks, primary dealers and financial
institutions for the purpose of hedging their own
balance sheet risks. Mutual Funds cannot,
however, undertake market making in FRAs/
IRS. Another significant development related
to the emergence of sector funds targeting
sectors such as information technology,
pharmaceuticals, fast moving consumer goods,
etc. Equally important was the emergence of
Dedicated Gilt Fund envisaging 100 percent
investment in Government securities, which has
made the gilt market accessible to small
investors. In order to promote dematerialisation,
the mutual fund industry introduced an innovative
product facilitating investment solely in
dematerialised securities and exchange of any
security in dematerialised segment for the units
of the scheme.
Resource Mobilisation
4.25 During April-December, 1999,Mutual
Funds raised Rs.35,915 crore in gross terms
as against Rs.16,288 crore in the corresponding
period of 1998. In net terms, they mobilised
Rs. 12,194 crore during the same period as
against a net outflow of Rs.950 crore during
the whole of 1998-99. Details of resource
mobilisation are given in the following table 4.5.
TABLE 4.5
Resource Mobilisation by Mutual Funds
April-December 1999-2000
(Rs. Crore)
Item
Private
Sector
Public
Sector
UTI
Total
Gross Inflow
24576
1734
9605
35915
Repurchase/
Redemption
15512
2466
5743
23721
Net Inflow
9064
(1453)
-732
3862
(335) (-2738)
12194
(-950)
Note : Figures in brackets indicate the net inflow/
outflow(-) during the entire financial year 1998-99.
Schemes of Unit Trust of India (UTI)
4.26 As a result of the steep decline in the
value of its investment arising mostly from the
depressed share market, the reserves of the
Unit Scheme, 1964 (US-64) had turned negative
as on June 30,1998.An expert Committee under
the Chairmanship of Shri Deepak Parekh was
therefore set up to undertake a comprehensive
review of the functioning of UTI and make
recommendations to restore investor confidence
in the context of the role of UTI in mobilizing
resources and channeling them to investment
in capital market. The Committee made a
number of recommendations, which include
suggestion for converting US-64 into a Net Asset
Value (NAV) –driven scheme over a period of
three years, fiscal incentives to investors in US64 scheme, revamping of the dividend
distribution policy, etc. Out of the 19 major
recommendations made by the Committee, 9
have been implemented while others are at
various stages of implementation. As on
September 30,1999,UTI managed 28 equity
schemes with unit capital of about Rs.6155
crore, and market value of investments of Rs.10,
816 crore. During the quarter ending September,
1999, 21 equity schemes of UTI outperformed
the BSE sensex, which registered an increase
of 15.1 per cent. The number of income/debt
schemes of UTI stood at 49 and the total
investible funds of these schemes amounted
to Rs. 35,467 crore as on September 30,1999.
As on June 30,1999 investments in debt
instruments, including money market
instruments, was Rs. 23,600 crore (71%) and
in equity Rs. 9724 crore (29%). The
corresponding figures rose to Rs.25026 crore
(Market value Rs. 25649 crore) and Rs.10441
crore (Market value Rs. 11745 crore) as on
September 30,1999. The portfolio restructuring
process initiated last year has begun bearing
fruits in terms of improved performance of core
equity portfolio and the improvement in credit
quality of debt.